The Coronavirus is first and foremost a human crisis but of course, it’s impacting many aspects of life at present, including investment markets. Emotions and uncertainty are running high meaning it is more important than ever for us to remain calm and stay focused on the basic principles of successful investing.
While we haven’t seen a pandemic driven market before, the basic principles of investing have not changed. In times of stress it’s good to go back to basics, and we are working hard behind the scenes to build strategies that will provide you with long term financial security.
Here are our top tips for getting through the crisis.
Diverse portfolios can help to mitigate your risk
When markets are volatile, which they are now, diversification will help minimise your risk. It won’t guarantee gains or protect against losses but it’s about managing the risk/reward trade off by selecting a mix of investments to help you achieve more consistent returns over time.
Assets that carry a higher risk should deliver a higher reward but are also likely to have more volatile returns over the short-term. You can offset some of this risk and volatility by including assets that have lower risk and return but lower short-term volatility.
By having your funds spread across a number of different investment types, your overall returns will be less volatile, as low returns or losses on one investment are offset against high returns or gains on another.
Sometimes things don’t go according to plan and occasionally an investment will make a loss. If you are well diversified and have limited your exposure to any single asset, you will be less likely to suffer a big loss if this happens.
Dynamic asset allocation principles can keep you on track
A common theme that repeats in market cycles is ‘crowd following’. Be it a hot stock, property boom or cryptocurrency, we as humans have a tendency to follow the crowd, for fear of missing out on the next big thing. This is commonly known as emotional investing.
As markets rise, people become overconfident and buy more investments at continually rising prices, believing the risks to be less. However, when the market turns and begins to fall, quite often investors reach a point where their nerve is lost, and they sell at the wrong time. By selling out at this point, you can miss the most crucial point; the recovery that soon follows.
Dynamic Asset Allocation removes the emotion out of investing and uses valuations and key metric indicators to take advantage of opportunities in the market.
We encourage our clients not to get caught up in the rollercoaster.
Remain calm and think long term
There is always something for investors to worry about and minute by minute updates on social media don’t help. Worries are normal around markets and sometimes they become intense. This is arguably evident now in relation to coronavirus uncertainty. However, it is important to remember that there have been hard times before and we do eventually recover. This too shall pass. Timing is hard and sometimes it might seem like a good time to buy or sell but we are firm believers in remaining calm and focusing on the long term.
REMAIN CALM, TURN OFF THE NOISE AND THINK LONG TERM
